The Australian Dollar (AUD) continued its downward trend against the US Dollar (USD) for the fourth consecutive day, following the release of disappointing third-quarter Consumer Price Index (CPI) data on Wednesday. Despite the ongoing decline, the downside for the AUD may be tempered by a hawkish sentiment surrounding the Reserve Bank of Australia’s (RBA) policy outlook.
According to the Australian Bureau of Statistics, the CPI increased by just 0.2% quarter-over-quarter in Q3, a significant drop from 1.0% in the previous quarter and slightly below the anticipated 0.3%. On a yearly basis, the CPI rose by 2.1% in September, missing market expectations of 2.3% and declining from August’s figure of 2.7%.
Meanwhile, the US Dollar experienced a slight correction as US Treasury yields dipped. However, any significant decline in the USD is likely to be limited, given the prevailing market caution stemming from uncertainty surrounding the upcoming US presidential election and anticipation of key economic data releases.
Traders are particularly focused on the impending release of preliminary US Q3 Gross Domestic Product (GDP) figures and October’s ADP Employment Change, which are expected to provide crucial insights into the timing and pace of anticipated Federal Reserve (Fed) rate cuts.
The latest positive US economic data reinforces confidence in the resilience of the US economy, supporting expectations for nominal interest rate cuts by the Fed in November. The CME FedWatch Tool currently indicates a 98.4% probability of a 25-basis-point rate cut, with no significant expectations for a more substantial 50-basis-point cut.
Australia’s CPI also revealed a decrease in the yearly rate to 2.8%, down from the previous 3.8% and below market forecasts of 2.9%, marking the lowest level since Q1 2021. Additionally, the US Bureau of Labor Statistics reported on Tuesday that JOLTS job openings fell to 7.443 million in September, down from 7.861 million in August and missing expectations of 7.99 million.
The RBA has indicated that the current cash rate of 4.35% is sufficiently restrictive to guide inflation back to its target range of 2%-3% while supporting employment, making a rate cut in November appear unlikely. However, recent consumer confidence data from ANZ-Roy Morgan showed a decline, with the index dropping to 86.4 this week from 87.5 the previous week.
From a technical perspective, the AUD/USD pair is trading near 0.6560, indicating a short-term bearish bias as it remains within a descending channel. The 14-day Relative Strength Index (RSI) is at 30, suggesting an oversold condition that may trigger a potential upward correction.
On the support side, the AUD/USD pair could test the lower boundary of the descending channel around 0.6520, followed by the psychological level at 0.6500. Resistance is expected at the upper boundary of the descending channel near 0.6590, with a key psychological level of 0.6600 above that. A breakout past this level could pave the way for the AUD/USD pair to approach the nine-day Exponential Moving Average (EMA) at 0.6619.
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